Overview of Construction Law and the Application of Time

Construction Law and the Application of Time

Power can not confer to what does not exist. Humankind has needed something to organize and structure his life, so we created time. So that, we using time as a benchmark can keep ourselves in check. It is, essentially, a social construct, which we live through our entire lives. It is not just fundamental but indispensable to our survival. The Law, similarly, has been created by us to dictate the way we must live our lives. With decency, honor, and respect. The concept of Time bleeds into and permeates every single aspect of our lives, including the law.

In this article, we apply and use the concept of Time, apply it to the Law and the implications of such a marriage in the construction and building industry.

While parties involved in construction or building are concerned with the money being earned or invested and the quality of the project work, another paramount aspect of development that remains on the forefront of their minds is time. It is undeniable that time is of the essence under a construction contract. Why so? For this article, we will focus on the fact that possible delays in completion of a project would entitle the employer to claim liquidated damages from the contractor. These claims are usually huge, challenging and tricky, for contract managers, construction lawyers, claim consultants, experts involved with reviewing claim valuations and adjudicators.

Several things get inextricably intertwined with the concept of time in conjunction with construction and building in the UAE, namely the Prevention Principle, Time at Large and its consequences on Extension of Time (EOT) or Liquidated Damages. Keeping in mind that these construction contract entitlements are always subject to the terms of the contract and current circumstances backed by actual records, this article sets out to emphasize the issues mentioned above, specifically in the UAE.

Prevention Principle

In Trollope and Colls Limited Versus North West Metropolitan Hospital Board , Lord Denning asserted, “it is well settled that in the building contracts - and in other contracts (related to construction) too - when there is a stipulation for work to be done in a limited (or, set) time, if one party by his conduct - it may be quite legitimate conduct, such as ordering extra work, - renders it impossible or impracticable for the other party to do his work within the stipulated time, then the one whose conduct caused the trouble can no longer insist upon the strict adherence to the time stated. He cannot claim any penalties or liquidated damages for non-completion in that time.” This concept took the shape of something known as a Prevention Principle. In layman terms, it means if the employer, intentionally or unintentionally, prevents the completion of the project on time as agreed in the construction or building contract, then the contract will proceed as if the time for completion was not contemplated between the parties. Thus, the time for the conclusion of the contract becomes Time at Largethereby disentitling employer from seeking liquidated damages for delay. The rationale behind the prevention principle is that a party, whether contractor or sub -contractor, is not liable if one party gets prevented by the other party from discharging its contractual obligation promptly. This same party cannot benefit from its own unfair act. The meaning of the Prevention principle was succinctly stated by Jackson J (as he then was) in Multiplex v Honeywell; by ruling that “the essence of the prevention principle is that the promisee cannot insist upon the performance of an obligation which he has prevented the promisor from performing.”

Although the prevention principle has long since been established in the English Common Law doctrine, not specifically alluded to under the UAE Civil Transactions Law (the UAE Civil Code). Nevertheless, the UAE Civil Code does contain provisions which imply the application of prevention principles for delays by employers. The general set of events that are prone to causing delay are, for example:-

Delayed site access,

Variations,

Changes in the agreed scope of work,

Delayed or late instructions,

Delays in approving drawings,

Involvement of other parties (such as the contractors, and sub-contractors employed by the employer) who may be running behind agreed schedule,

Delays in providing raw materials (where such responsibility rests with the employer)

The principle is embraced under Article 246 of the UAE Civil Transactions Law since the principle of good faith is well embedded within this article. It states: (1) “The contract must be performed per its contents, and in a manner that is consistent with the requirements and principles of good faith. (2) The contract shall not be restricted to an obligation upon the contracting party to do that which is (expressly) contained in it, but shall also embrace that which is appurtenant to it by the law, custom, and the nature of the transaction.”

Contractors often cite this provision for several reasons, such as exercising good faith, or for allegations of unlawful acts by an employer, or an engineer on the client’s behalf.

Further, Article 106 of the UAE Civil Code also states that neither party may exercise its rights under a contract in a manner which is oppressive or abusive to the other. Article 106 of the Civil Code sets out that the exercise of a right shall be unlawful if, among other things, the interests desired are disproportionate to the harm that will be suffered by another party. Accordingly, failure of an engineer to grant an extension of time and the subsequent attempt by an employer to importune for liquidated damages would perhaps fall foul of the provisions of Articles 106 and 246 of UAE Civil Code.Articles 318 and 319 of the UAE Civil Code further provide that unjust enrichment is unlawful and hence, in construction matters, contention can be raised against unjust enrichment by the employer when he has caused delay. However, the same provision can be relied upon by the employer in case of concurrent delays if proved that the contractor was equally responsible for the delay. Furthermore, the local law of UAE also deems “excluding liability clause” as unlawful under Article 296 of the UAE Civil Code. This article states that any conditions purporting to provide an exemption from liability for a harmful act shall be void, which can be interpreted to mean that any provision which entirely exempts a guilty party from liability can be considered void.

Time at Large

Invalidation of liquidated damages clause can be evidenced by the landmark judgment in construction industry that is, Peak Construction (Liverpool) Ltd. v McKinney Foundations Ltd. , wherein Salmon LJ held that: “if the employer wishes to recover liquidated damages for failure by the contractors to complete on time in spite of the fact that some of the delays are due to the employer’s breach of contract, then the extension of time clause should provide, expressly or by necessary inference, for an extension of time on account of such a fault or breach on the part of the employer”

Once the time becomes at large, the contractor will be released of any liability for liquidated damages. This release from liability would occur fundamentally because the length of time fixed by parties for completion itself would cease to be considered, and the contractor would only be obligated to complete the project work within a reasonable time. Time could become at large not only due to the application of a prevention principle but also in the following circumstances:

Parties’ failure to state completion date in the contract, or;

Due to the failure of the extension of time mechanism.

Employer’s interference in the certification process or when the engineer/architect or surveyor is not granted authority to grant or permit any extension of time in the occurrence of relevant events contributing to delay not attributable to the contractor.

In this matter, the central onus of proof is on the employer to establish a reasonable time for completion of the project and whether any losses have been incurred due to delay by the contractor.

Reasonable Time

At first glance, the application of the Time at Large principle seems fair and easy enough to understand. However, it is fraught with practical intricacy. Keith Pickavance, in his worthy paper titled “Calculation of a Reasonable Time to Complete When Time is at Large”, identifies the following factors as potentially relevant for the calculation of a reasonable time for completion in any given circumstances:

Estimation of the probable duration of construction specified during negotiations;

Risk allocation during the period of construction as per the contract;

The extent to which sometimes risks are or may be within the control of one or other of the parties;

If liquidated damages claim is made by the owner when time is at large, the onus and burden of proof will fall on the employer to prove that:

The contractor has exceeded the “reasonable time.”

The owner suffered losses as a result of such delays.

The duration of time that constitutes reasonable time is a question of fact, not of law, wherein various factors and circumstances get objectively assessed. The circumstances existing at the time of the contract on the site of work, the scope of work of each party involved, material variations, excluding liability clauses and situations, factors in control of contractor to avoid any delays, etc. are the factors considered which are elastic and case specific.

Time Bars

However, the liquidated damages clause could be kept alive due to the time bar provisions. These state the completion date or provision for extension of time, but only for critical delays attributable to the employer, or other delays wherein the EOT can be granted by the engineer, surveyor or architect. Time bar provisions persuade the contractor to notify the delays or request for additional payments. Thus the time bar provision encourages the parties to imbibe an EOT clause for mutual interest.

Extension of Time

Given the above, it is essential to retain or draft an extension of time (EOT) clause in the contract for the diligent exercise of rights and opportunities by the construction and building contract parties. The FIDIC red book, which states provisions under which EOT can be granted, is one of the most recognized FIDIC forms in UAE. Given the fact that a construction contract regulates the risk apportionment between the parties, the contract must clearly state the list of events which are to be considered as “relevant events” to entitle the contractor for EOT including which events are at the employer’s risk. If the delays have occurred due to any reason which is not attributable to the contractor and affects the critical path of the project, whether identified as a critical path or not, this will entitle the contractor to seek EOT. The employer must provide EOT for such sharp delays. Engineers in charge of the site, contract consultants or administrators who are appointed by the employer for assessing the project works can also grant an EOT.

Nevertheless, grant of EOT has always been subject to notification by the contractor. The FIDIC 1999 Sub-clause 20.1 (Contractor's Claims) established a new practice barring the contractor's right to EOT for non-adherence to the requirement of a contractual notice. Thus contractors risk their entitlement to EOT if they fail to notify the delay and state reasons for the same, thereby failing to comply with the contractual condition precedent of notice. The notice must cover detailed information about the claim along with supporting documentation. This aids parties to raise the claim during the performance of the contract and also evaluate the claims for later certification (or rejection).

Conclusion

The risk appropriation, applicability of prevention principle, time becoming at large, entitlement to EOT and liquidated damages is often adjudicated from the relationship between the parties as laid down in the contract. The establishing of liabilities and rights of the parties is a function of the precise wording of the contract as well as the very understanding of the facts of the case. Based on above, it is recommended to have meticulous drafting as well as a definite knowledge of the provisions by the contract managers of the parties. Therefore, exercising the diligence to fulfill the preconditions necessary to establish any claims is the sine qua non for any party to the construction contract to establish one’s claim.

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